7 lessons in collecting: Understand supply and demand
- Published: Dec 23, 2014, 3 AM
Editor's note: The following post is part of Coin World's "7 lessons in collecting" series. Find links to the other posts at the bottom of this page.
Investing in rare coins is not easy. It takes dedication to learn various aspects of coin collecting that are always changing: supply, demand, rarity, grading, and understanding how to maximize value when buying and selling. These are skills that take years, if not a lifetime, to master.
Thankfully plenty of helpful resources exist in the coin field to help collectors willing to put in the legwork to maximize the investment return on their collection, including a new book by Robert W. Shippee recently published by Whitman, titled Pleasure and Profit. In it, Shippee discusses his pursuit over the course of more than a decade to put together a type set of each major design type from copper half cents to gold $20 double eagles, from 1793 to the present day. It’s a frank, candid tome filled with anecdotes that collectors can learn from.
Lesson No. 5: Understand supply and demand to find value
Buying quality is a start, but one must also be careful to not overpay. Q. David Bowers of Stack's Bowers commented: “Bob always sought high quality, but at the same time had an eye out for value. This is contrarian thinking to what most buyers do: for them, the higher the grade, the better.” When buying a coin, a collector needs to ask: is this price fair for the coin? (And, perhaps the more challenging question: Is this coin worth what the market is saying its worth?)
A collector should perform due diligence when deciding if a price being offered for a coin by a dealer is fair. Shippee says: “I do not recommend that you put your complete trust in the prices offered by any dealer, no matter how trustworthy they may be. Do a little research and make up your own mind on what a coin should cost. There is a wide range of sources for you to consult to learn about the prices of coins.” These include retail price guides like Coin World’s Coin Values and A Guide Book Of United States Coins (better known as the “Red Book”), but collectors today have a wider range of access to prices than ever before, including various online sources like PCGS’ Coin Facts, NGC Coin Explorer and searchable online auction records from the major auction houses.
Heritage’s auction archives are particularly robust with more than 1 million coins and huge photos where you can compare a coin’s quality. Add to this wholesale price guides like the Coin Dealer Newsletter (better known as the “Grey Sheet”) and one has a surplus of information to decide if a coin’s price is reasonable.
Shippee suggests that if you think a dealer’s price is a little high, there’s no harm in asking if a discount is available, but warns that while a little gentle haggling may save a collector a few dollars, most good dealers operate on sufficiently slim margins that they won’t offer large discounts from their stated prices. Also, in a market with such transparent pricing, one must wonder why when a coin is offered at a discount and take note of the old adage, if something seems too good to be true, it probably is.
He points out that some series have more traditional investor demand than others, “Certain series of American coins, including early half cents, are rarely bought by capricious coin investors, but rather are accumulated gradually over time by true collectors. As a result, price volatility is often lower, and price appreciation over time is likely to be unspectacular (except, perhaps, for especially rare dates and the finest-quality examples). Manage your expectations accordingly.”
Take Seated Liberty dollars. They are rarer than Morgan dollars and so may offer better potential value. But Shippee notes: “Morgan dollars are more popular than Liberty Seated dollars, and part of that popularity derives from the fact that they are more readily available. Economics always comes back to supply and demand.”
More from the "7 lessons in collecting" series:
- Lesson No. 1: Invest in education first
- Lesson No. 2: Understand that mistakes happen
- Lesson No. 3: Learn how to grade coins
- Lessong No. 4: Quality and rarity don't go out of style
- Lesson No. 5: Understand supply and demand to find value
- Lesson No. 6: Look for special coins and stretch for them
- Lesson No. 7: Understand how to work with dealers
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